world bank documentdocuments.worldbank.org/curated/en/629571468781750702/pdf/multi-page.pdf · and...
TRANSCRIPT
V/PS 's 4
POLICY RESEARCH WORKING PAPER 1747
Protection and Trade In the past internationaleconomists have ignored
in Services trade in services, but
technoloqical proqress and
A Survey international trade
negotiations are likely to keep
liberalization of trade in
Bernard Hoekman services a hiah-orofile Dolicv
Carlos A. Primo Braga issue.
The World Bank
International Economics Department
International Trade Division
April 1997
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
I POLICY RESEARCH WORKING PAPER 1747
Summary findings
Until recently, trade in services was mostly ignored by trade, the gains from liberalization, and the institutionalinternational economists, reflecting a perception that mechanisms adopted in pursuit of liberalization.services were nontradable. This has never been true. They argue that technological progress (which makesTransportation and travel, for example, have always services more tradable) and international tradebeen important economic activities. In 1995, services negotiations are likely to keep liberalization of trade intrade had climbed to a 20-percent share of global trade services a high-profile policy issue.- no doubt an underestimate, as the most dynamic They suggest that research focus on developing bettercomponent of trade in services is telecommunications, estimates of the welfare costs of protectionism in thewhich is not being properly captured in conventional service sector. This will require quantifying barriers tobalance of payment statistics. the international exchange of services.
Hoekman and Braga survey the literature on trade inservices, focusing on the policies used to restrict such
This paper-a product of the International Trade Division, International Economics Department-was prepared for TheOpen Economies Review. Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington,DC 20433. Please contactJennifer Ngaine, room NS-060, telephone 202-473-7947, fax 202-522-1159, Internet [email protected]. April 1997. (36 pages)
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas aboutdevelopment issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. Thepapers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in thispaper are entirely those of the authors. They do not necessarily represent the view of the WTorld Bank, its Executive Directors, or thecountries they represent.
Produced by the Policy Research Dissemination Center
Protection and Trade in Services: A Survey*
Bernard Hoekman and Carlos A. Primo BragaThe World Bank
JEL Classification: F13; F23
Keywords: trade in services, protectionism, World Trade Organization, trade negotiations
* Prepared for The Open Economies Review. We are grateful to constructive suggestions bya referee.
I. Introduction
Until recently, trade in services was mostly ignored by international economists, reflecting a
perception that services were nontradable. This has never been accurate: transportation and
travel, for example, have always been important economic activities. Since the early 1980s,
however, international service transactions expanded rapidly as new modes of supply have
materialized, as in the case of services transmitted over electronic networks. Trade in services
grew faster than trade in merchandise throughout the 1980s. In 1990, global services trade
(defimed as non-factor services in the balance of payments minus government transactions)
stood at US $ 0.8 trillion, or 20 percent of global trade (in contrast with a 17 percent share by
1980). By 1995, services trade had reached roughly US$1.2 trillion per year, maintaining a 20
percent share in global trade (WTO 1996). Given that the most dynamic component of trade in
services -- services provided via telecommunications networks -- is not being properly captured
in conventional balance of payments statistics, growth of services trade is most likely being
underestimated.
Notwithstanding technological advances, many services remain difficult to trade.
Producers of such services generally must supply foreign markets through commercial presence,
especially foreign direct investment (FDI). FDI in services has also grown substantially over the
last fifteen years. As of the early 1990s, some 50 percent of the global stock of FDI was in
services activities. The share of services in annual FDI inflows into many countries has often
been much higher in recent years.' The internationalization of services is therefore reflected in
the growth of both trade and FDI flows. Both have been driven by innovations in information
and communications technology that allowed increasing specialization and product
See UNCTAD and World Bank (1994) for data on FDI in services; Sauvant and Zimny(1987), Blomstrom and Lipsey (1989), Li and Guisinger (1992) and Edvardsson et al. (1993) fordiscussion of service multinationals.
1
differentiation, as well as government policies such as deregulation and liberalization.
This paper surveys some of the literature on trade in services, focusing on the policies
that are used to restrict such trade, the gains from liberalization, and the institutional mechanisms
that are adopted in the pursuit of liberalization. The discussion is mostly policy and empirically
oriented. The burgeoning theoretical literature is not discussed in detail here.2 The plan of the
paper is as follows. Section II discusses some of the technological developments that have
fostered the growth in trade and investment in services, focusing on the "revolution" in
telematics. Section III summarizes the main policy instruments that are used to restrain trade in
services. Section IV surveys some of the work that has been done on the gains of liberalization.
Section V turns to the various institutional options that may be used to open service markets to
foreign competition. Section VI concludes.
I1. Technology and Internationalization of Services
Service transactions often require direct interaction between providers and consumers. In other
words, the time and space of the production and consumption of services cannot be separated in
most circumstances (Sauvant 1990). Sampson and Snape (1985), for example, used the physical
proximity of consumers and providers to classify service transactions.3 Most international
transactions in services require either the consumer to move to the location of the producer (e.g.,
tourism) or that factors of production move to the place of consumption (e.g., foreign direct
investment to establish commercial presence or the temporary movement of labor). There are,
however, services that can be exchanged internationally in a similar fashion to trade in goods via
cross-border supply (i.e, without a movement either of consumers or producers). These services
2 The theory literature has been surveyed in Sapir and Winter (1994) and Stibora and de Vaal(1995).
3 See also Bhagwati (1994).
2
are sometimes characterized as "separated" or "long-distance" services.
International telephony provides a good example of a service for which cross-border
supply is the dominant mode of delivery. International telephone traffic has bezn expanding at a
two-digit growth rate over the last two decades fostered by a sustained decrease in the costs of
communication.4 Technological progress has been the key driver of this process, but the
economics of the expansion of cross-border services is also shaped by existing barriers to trade,
the influence of national regulatory regimes and the prevailing international rules that influence
competition (and cooperation) in the telecommunications sector.
The merger of telecommunications networks and computers is expected to continue to
foster dramatic shifts in the cost structure of the telecommunications industry. This process
started with the transition to customer-initiated dialing in the 1 970s which not only has
significantly reduced the costs of international telephony, but also shifted the composition of
costs toward capital outlays, diminishing the importance of labor-related (variable) costs (Ergas,
1996). In a parallel development, the costs of transmission have been falling on a continuous
basis as the costs of production of fiber-optics cables fell by a factor of thirty over the last ten
years (Forge 1995). And an even more dramatic decrease in the costs of computing has occurred
over the last two decades with the cost of information processing falling by a factor of 10,000
(World Bank 1995). All these developments have increased the incentives for the
internationalization of the industry, the proliferation of new services, not to mention the
emergence of packet-switching networks (e.g., the Internet) as the costs of routers (computers)
fall in relative terms to the costs of transmission (MacKie-Mason and Varian 1993).
Rapid technological change in the telecommunications industry has a dual impact on the
economics of trade in services. First, as already noted, international telephony provides the
4The volume of international traffic grew from 4 billion minutes in 1975 to more than 60billion minutes by 1995, averaging a growth rate of 15 per cent per year (ITU, 1997).
3
prime example of cross-border delivery of a service and technological progress is expected to
continue to promote its rapid expansion. Second, these developments tend to increase the
tradability of services to the extent that they make easier to unbundle the production and
consumption of information-intensive service activities -- e.g., research and development,
software development, data entry, inventory management, quality control, accounting, personnel,
secretarial, marketing, advertising, distribution and legal services.'
As noted in Primo Braga (1996), the impact of information technology on the tradability
of services is not limited, however, to increasing the feasibility of long-distance provision. The
introduction of new products (e.g., financial derivatives, computer reservation systems for
airlines, and telemedicine) and qualitative changes in the provision of existing services (e.g.,
distance education) are also being promoted by technological progress in information
technology. Moreover, as communication links improve, the incentives for specialization and
outsourcing of service activities expand. In this context, services are at the very core of the
process of internationalization of economic activities by providing connections (e.g., via
transportation and communication links) and by allowing the coordination (e.g., via "just-in-
time" inventory-management practices) of separate production processes. 6
In sum, technology is rapidly expanding the tradability of services. As the price-quality
mix of producer services (i.e., services that serve as inputs into the production of other goods and
services) improve this has a positive feedback effect in terms of the demand for services. It
allows firms to specialize in their core competencies and outsource needed inputs (either goods
or services), benefiting from improved comrnunication and coordination links. At the same time,
For a discussion of the tradability of information-intensive services see Apte (1994).
See Jones and Kierzkowski (1990) for a discussion of the role of services in internationaltrade.
4
as the feasibility and importance of trade in services expand, the binding nature of explicit and
implicit barriers to trade becomes more evident. In the next section, we discuss the main
characteristics of such barriers.
III. Barriers to Trade in Services
Most countries pursue policies of one kind or another that restrict the access of foreign services
and service suppliers to domestic markets. Sometimes competition by foreign suppliers is
prohibited. Alternatively, foreign suppliers may have to pay an "entry fee" or may be subjected
to market share restrictions. In this respect there is little difference between trade in goods and
trade in services. Indeed, the policy instruments that affect international trade in services are
similar to those used in the goods context, and consist of measures such as subsidies, tariffs,
taxes, quotas, and technical standards.7 However, border measures in general, and ad valorem
tariffs in particular, are often difficult to apply to trade in services for the simple reason that
customs agents in many instances will not be able to observe the service as it "passes the
frontier." Customs agents will only observe service suppliers or consumers as they pass the
frontier. The value (or volume) of any service transactions that occur can not be known until
after they have been produced/consumed, and are therefore not known to customs and
immigration authorities.
The liberalization of trade in services entail measures that expand market access to
foreign service providers and/or diminish discrimination against them vis-a-vis domestic
suppliers. It is worth noting, however, that in the case of services, regulation can be an important
indirect barrier to trade and regulatory reform is often a necessary complement to trade
liberalization.
7 See Hindley (1988) for a conceptual analysis of protection in service industries.
5
Quotas, local content and prohibitions
Quantitative restrictions (QRs) are often used to restrict international trade in services, although
the intangibility and nonstorability of many services implies that quotas may be applied to
providers of services rather than services per se. Prominent examples of QR-type policies are the
bilateral air service agreements (ASAs) that regulate international trade in air transportation
services and the cargo sharing arrangements administered by the United Nations Conference on
Trade and Development (UNCTAD) Liner Code. The ASAs specify which airlines may fly on a
given route, the capacity (number of seats/flights) that may be provided in a given time period by
the airlines involved, and the amount of capacity that airlines from third countries are permitted
to offer on that route. In general ASAs are based on strict reciprocity and are company specific,
in that country A tends to grant landing rights to a specific airline originating in country B only if
an airline from country A is offered reciprocal landing rights by country B. The UNCTAD Liner
Code is somewhat similar in that it specifies that in liner trade between any two states that are
signatories to the Code, the national shipping lines of those states shall have equal right to
participate in the freight and volume of traffic generated by their mutual trade, subject to the
condition that third-party shipping lines be given the right to acquire a "significant part, such as
20 percent" of such traffic.
In many instances trade is simply prohibited. Common examples where foreign access to
service markets may be reserved exclusively for domestic suppliers are the transportation of
goods within a country (whether by air, road, or water) and basic telecommunication service
providers (e.g., voice telephony). Many countries also require that activities such as legal,
insurance, educational, surveying or investment advisory services be provided by residents or
citizens of the country concerned. Prohibitions may be conditional, in that a country may decide
to prohibit trade in services for foreign policy reasons. For example, the U.S. government
6
retaliated against the USSR in 1982 for the imposition of martial law in Poland by suspending
exports of technology and equipment used for construction of the trans-Siberian pipeline. The
U.S. embargo on licensed technology and equipment was applied to affiliates of U.S. firms
located in the EC as well to firms located in the U.S. One consequence was that crucial
telecommunications traffic - largely consisting of database services and data processing -
between a French affiliate involved in the pipeline project (Dresser Industrie) and its American
parent was shut down, thereby greatly reducing the feasibility for the French firm to continue its
design work and meet its contractual obligations.8
Restrictions on transborder data flows are by no means limited to such episodes of
economic sanctions and have been pursued by numerous countries in the context of import-
substitution industrialization policies (Sauvant, 1986a,b). More recently, this theme has gained
an additional dimension with the expansion of computer-mediated networks (e.g., the Internet)
and the proliferation of computer conferences or electronic bulletin boards with participants from
different nations, operating under different legal regimes. Issues concerning privacy, control
over pornography, protection of minors and intellectual property rights as they apply to
cyberspace are being currently debated (Branscomb, 1995). Needless to say, these new
regulations -- which are at the very core of the discussions focusing on national information
infrastructures -- can evolve into indirect barriers to trade, generating significant transaction costs
for private participants and curtailing the advantages of market access brought up by this new
medium.
Price-based instruments
In the services context, tariffs are used primarily to affect trade that occurs via the cross-border
8 See Griffin and Calabrese (1988) for a more detailed discussion as well as references to theliterature on this case.
7
movement of natural persons, taking the form of visa fees and entry or exit taxes, or
discriminatory airline landing fees and port taxes. All of these are analogous to specific tariffs.
In most countries such "tariffs" are low, QRs and immigration policies constituting the primary
means of restricting market access. Tariffs are potentially more important barriers to trade for
services that are either embodied in goods or for goods that are necessary inputs into the
production of services. Examples of the former include films, television programs, and computer
software on disk or tape, while examples of the latter include computers, telecommunications
equipment and specific advertising or promotional material.
Price controls may also be used. These involve either price-setting by government
agencies or government-sanctioned industry bodies and/or price monitoring and approval
procedures by government agencies for prices charged by industries for their products.
Frequently such controls will involve service provision by a government-owned or sanctioned
monopoly. Price controls frequently go hand in hand with capacity or quantitative restrictions,
the intention usually being to ensure that prices are not set at either market clearing levels or at
the monopoly level in cases where providers of specific services have substantial market power.
Major examples of service sectors subject to price controls are air transportation, financial
services and telecommunications, where government agencies frequently impose minimum or
maximum prices, enforce a price setting rule or formula, or require uniform pricing.
Procedures agreed under auspices of the International Telecommunication Union (ITU) to
share revenues between national post, telegraph, and telephone companies (PTTs) related to
international telecommunications traffic provide another example of a price-related mechanism
that distorts trade in services. In this case, an internationally agreed system of cooperation
creates disincentives for further liberalization of international telephony. The origins of the
international accounting rate system go back to 1865. It was designed as a mechanism to share
revenues between origin, destination and transit countries at a time when international services
8
were provided in a "cooperative" manner by monopolistic carriers. The system relies on a dual
price scheme in which the carrier from the country that originates the call charges a retail price
(the collection charge) to the local consumer and agrees on a wholesale price (the accounting
rate) with the carrier of the country where the call is terminated. If over time there is an
imbalance in the outgoing and incoming traffic between the two countries, then the carrier that
generates more traffic compensates the other by applying the settlement rate (usually half of the
accounting rate) to the net imbalance.
The accounting rates provide a floor for retail prices in any given economy with respect
to international telephony. As countries begin to liberalize their telecom industries, competition
in the liberalized markets tends to drive collection prices down. To the extent that international
telephony typically faces an elastic demand (Ergas, 1996), this increases the volume of outgoing
calls in the liberalized market vis-a-vis incoming calls from monopolistic markets. And as the
accounting rate does not reflect the true cost of the service (which typically has been falling as a
consequence of technological progress), the size of the related distortions escalate. In this
context, the cartelized arrangements for international price determination create barriers to
firther liberalization as they tend to bolster the producer surplus of monopolistic carriers by
promoting rent transfers from liberalized to monopolistic markets.
Service industries are also sometimes supported through explicit or implicit subsidies--
especially construction, communications, and transport. OECD data indicate that between two-
fifths and three-fifths of budgetary subsidies are sector-specific, and that much of the support
goes to declining non-service industries such as steel, shipbuilding, and mining (Ford and
Suyker, 1990). Of the service sectors, available statistics show that rail transport is often highly
subsidized, with rates of support varying between 15% and 180% of total value added produced
in this sector. Support for rail transport in many EU members was close to or over 40% of
sectoral value added in the 1980s.
9
Standards, licensing andprocurement
To be able to provide services, suppliers often must obtain certification or licensing. This is the
case in particular for professional and certain business services (e.g., financial). Examples of
licensed professions include legal, accountancy, and medical services. The required licenses are
often accorded by the government or by the professional bodies concerned. Environmental
standards may also influence service activities, especially transportation and tourism. Thus,
transport may be subjected to emission or energy efficiency standards, while tourism may be
affected by environmentally-motivated zoning or land-use restrictions or limitations on the
number of visitors allowed to access a certain area.
In many instances regulation has been used to severely restrict entry by foreigners and
thus the supply of services, thereby allowing prices to be driven up. Thus, the licensing regime
that affects trade in professional services often acts to restrict entry into the industry, be it by
domestic or foreign persons. In the services context, the primary standards-type restrictions
affecting international trade relates to issues such as nonrecognition of imported services or
services procured abroad (e.g., diplomas obtained in foreign education or training programs) as
well as nonrecognition of the certification or professional qualifications of foreign service
providers. Alternatively, there may be discriminatory standards imposed upon foreign service
providers that are more stringent or more costly to meet than those affecting domestic providers
of similar services. A lack of uniform or mutually recognized standards and regulations may act
to protect domestic industries and may therefore have a negative impact on consumer welfare.
Government procurement and sourcing policies may also be designed to discriminate in
favor of domestic service providers. As government contracts comprise a large share of the
market for a number of services, the impact of discriminatory procurement policies on trade in
services may be large. For example, in the United Kingdom some 30% of billings of
management consultants are from government work (Sowels, 1989). Similarly, government
10
accounts for a substantial share of construction contracts awarded in a given year in many
countries. The use and transparency of procurement preference policies varies across countries.
Under the Buy American Act, the U.S. government offers a six percent price preference to
domestic suppliers of goods and services, a 12 percent preference to small businesses and firms
located in regions with high unemployment, and a 50 percent preference for defense-related
contracts. This is supplemented by outright bans on foreign sourcing for certain types of
products.9 Other countries do not employ specific, formal criteria such as price margins, but rely
on less transparent methods to favor domestic firms. For example, many countries have
"unwritten rules" under which accounting or advertising business go to local firms (Noyelle and
Dutka, 1988).
Government procurement discrimination is particularly important in services as
government entities frequently account for a significant share of total demand for some services.
For example, a recent study of U.S. government procurement that combines detailed data on
federal procurement with disaggregated input-output table and social accounting data concludes
that the importance of discriminatory government procurement regulations as a barrier to trade is
likely to be greatest for services such as education, data processing, and non-medical professional
services (Francois, Nelson and Palmeter, 1997). This is the case especially at the state and local
level, where entities have a significant presence in the construction and the maintenance and
repair market.
E.g., requirements that civil servants on official business fly national airlines whenever suchairlines provide service to the relevant destination, that U.S. government property be transportedby U.S. flag carriers, or a 50 percent cargo reservation requirement for transport of surplus food,military cargoes and Export-Import Bank financed cargoes (USITC, 1991).
11
Discriminatory access to distribution networks
In order to offer/provide many types of services, suppliers need to be able to use existing
distribution and communications infrastructures, especially telecommunication networks. A
dominant telecommunication carrier - whether public or private - may discriminate across
users/demanders of their network services by imposing restrictions on the ability of new service
providers to attach specific types of equipment to the network or by forcing newcomers to build
additional infrastructure to reach interconnection points that are rationed by the incumbent.
Regulatory intervention is often required in these cases to guarantee that the incumbent provides
the needed information on the architecture of the network and allows for interconnection at any
point of the existing network.
In the case of air transport, discrimination with respect to the availability and cost of
ancillary services may substantially reduce the competitiveness of an airline in a particular
market. Not being listed in the computer reservation systems used by local travel agents may
result in an effective inability to compete; inadequate ground handling services may result in
long delays and customer dissatisfaction. Mention can also be made of access to marketing
channels. Restrictions on marketing (advertising) may have an analogous effect to limitations
regarding access to telecommunication networks as far as the ability of a foreign provider to
contest a market is concerned. For example, in the insurance industry limitations on advertising
are a prevalent form of limiting the ability of foreign service suppliers to compete (Senti, 1986).
It is also worth noting that in the case of branded products (like automobiles), distribution
arrangements (e.g., the establishment of a dealer network) may play the role of indirect barriers
to market access. In the case of automobiles, for example, it has been shown that established
dealers tend to be conservative in their willingness to switch franchises. Accordingly, market
penetration by new manufacturers require significant investments in building-up dealer networks
to contest existing markets (Audet, 1996).
12
IV. Gains From Liberalization
There is substantial evidence that policies that reduce competition in service industries are very
costly. Producer services, in particular, play a crucial role in the development and growth
prospects of any nation. Losses of agricultural output due to poor transportation and storage
facilities and the impact of substandard communication networks on the costs of doing business
are familiar examples in this context. In the case of manufacturing, access to global networks in
communication and transportation is a necessary condition for international competitiveness.
Products are becoming increasingly time sensitive, both because of shorter product life-cycles
and because of the pervasive use of 'just-in-time' production management techniques. Foreign
buyers must be assured that a supplier can deliver to specification and on time. This latter
requirement in particular may be difficult to meet if producer services are of low quality or high-
cost.
Experience illustrates that restrictions on services trade and investment is costly and that
liberalization can bring large efficiency and welfare gains. Some examples are helpful to
illustrate this point. In the U.S. foreign shipping firms are prohibited under the Jones Act from
transporting goods or people from one U.S. location to another (White, 1988). The purported
rationale for this restriction insofar as coastal shipping is concerned is the need to maintain an
adequate marine capacity to meet defense needs. However, in this it has not proven to be very
effective, as illustrated during the 1990 Gulf War, where "America's subsidized merchant fleet
had directly contributed only six aging ships to the armada of more than 460 that transported
military materials into Saudi ports" (Quartel, 1991). Estimates of the price increasing effect of
the Jones Act range from a low of 100% (USITC, 1991) of the average world price to a high of
300% (White, 1988). Recent studies conclude that the welfare costs of this protection (assuming
a conservative 100% price difference) comprise at least $3 billion a year (Francois et al., 1996).
Abolishing the prohibition on trade would increase cabotage traffic and demand for services
13
incidental to water transport (port services, etc.), while the decline in domestic employment in
the cabotage sector would be more than compensated by increased employment in other sectors
(Ibid.).
A study of the effects of flag discrimination and cargo preference policies maintained by
Chile until the late 1 970s is representative of the qualitative effects of these restrictions.
Although the policy expanded the size of the Chilean flag fleet, it was inefficient, imposing
higher costs on shippers than would have been available in a competitive environment.
Moreover, the restrictions limited the availability of efficient/specialized ships required to
transport new products developed by Chilean industries during the 1970s such as fresh fruit and
fish. Subsequent liberalization of flag discrimination (in part outright abolition, in part a shift
from quota-type restrictions to taxes on the use of foreign shipping lines and price preferences for
domestic suppliers)1 0 led to substantial diversification of Chilean exporters away from domestic
shipping lines, allowing products to be shipped at significantly lower cost. Many Chilean
shipping lines shifted to flags of convenience, thereby eliminating the need to employ high-cost
labor. As a result, most lines were able to adapt to the changed environment."
Additional examples of the benefits of services liberalization and deregulation and their
influence on international trade are provided by the experiences of Chile and Mexico with
respect to port services. Elimination of barriers to competition in the provision of port services
in Chile led to substantial reductions in operating costs (by about 50 percent over two years).
The same occurred in Mexico when entry into the relevant service activities was made free,
Under a price preference, local producers are allowed to exceed prices available on worldmarket by a certain amount. As long as domestic prices do not exceed a specified maximum(relative to world prices), local suppliers are to be awarded a contract.
Indeed, only one shipping line went out of business. See Bennethan et al. (1989) for anextensive discussion of this case. See also Bohme (1989) on the UNCTAD Liner code andmaritime transport.
14
service market segmentation was eliminated, and firms were allowed to subcontract freely and
set prices according to market forces. In one year the cost of services in the port of Veracruz
declined by some 30 percent, while container turnover went up by almost 50 percent. As noted
by the World Bank, "the deregulation of transport services in Chile and Mexico has had an
important effect on those countries' ability to compete internationally. By reducing the costs of
shipping by almost 50 percent, small and medium sized firms that would otherwise be marginal,
have been able to expand their export activities" (World Bank, 1993, p. 90).
Labor productivity at AEROMEXICO more than doubled following privatization and the
introduction of foreign equity, while MEXICANA, the second airline, registered labor
productivity gains of some 50 percent.'2 In Argentina privatization and the introduction of
foreign equity in the two telecommunications companies in the early 1990s, had significant
impacts on investment in upgrading infrastructure with a view of improving the quantity and
quality of services. Telefonica added some 66,000 lines to its network in the eleven months up
to September 1991, and another 276,000 lines in 1992. Telecom, the other company created in
the privatization of the telephone monopoly ENTel, added 51,000 and 222,000 lines,
respectively. This greatly exceeded the investment level required under the terms of the
operating licenses granted to the two firms. In addition to this net expansion of their networks,
both firms also upgraded their technology, moving towards digital systems. Telecom installed
some 420,000 lines in 1992 alone, of which 95 percent were digital. The rival company also
expanded the share of its lines that were digital. For purposes of comparison, ENTel had only
added 98,000 lines a year in the five years before privatization.'3 Many other examples can be
12 What follows draws on World Bank (1993).
See Hill and Abdala (1993).
15
given."4
Foreign direct investment in certain intermediation services, and financial services in
particular, can make a significant contribution to a country's economic growth. Such investment
is likely to have positive effects in terms of transfer of technology, introduction of new products,
price reductions, and quality improvements. Moreover, intersectoral linkages will usually be
large, as finance and insurance are important components of developing and maintaining a
competitive export sector. Examples of the beneficial effect of financial sector liberalization
abound. For example, an empirical investigation of the determinants of agricultural output in
India found that expansion of commercial bank networks and availability of services had a very
substantial positive effect on private agricultural investment."5 Australia provides an example of
the effects of banking liberalization in an industrialized country.'6 Liberalization led to large
financial inflows and a transformation of the market for financial services. The entry of foreign
banks increased competitive pressures and led to a reduction in profit margins, fees and lending
rates. Foreign entry did not result in the elimination of domestic incumbents: after two years,
foreign firms accounted for only 10 percent of the market. In part this reflects the costs of
establishing a broad-based network of retail outlets (or alternatively, the costs of
mergers/takeovers), but it also reflected the adaptation of local firms to competition.
General equilibrium aspects
The foregoing examples were anecdotal. Unfortunately, limited empirical work has been done in
14 See e.g., Kessides (1993), Kaspar (1988), Wellenius et al. (1989), World Bank (1993),Galal (1994), Pipe (1994), Taylor and Vidal (1994), Schware and Hume (1994), Smith andStaple (1994), and Hanna (1994).
15 See Binswanger et al. (1993).
16 What follows draws upon UNCTAD and World Bank (1994, 108-109).
16
this area. In principle, such work should focus on the general equilibrium impact of services
liberalization. As services are an input into production of most industries, an inefficient service
sector can be very costly to the economy as a whole. Such general equilibrium implications of
service sector protection have tended to be neglected in both academic analyses (theoretical and
empirical) and in practical policy reform programs. For example, even if a country were to
engage in a reform program that would reduce tariffs of goods to zero, if this program did not
include the service sector, distortions would continue to persist and resource allocation would be
affected. Indeed, as nations move to reduce tariffs and other barriers to trade substantially,
effective rates of protection may become negative for manufacturing industries as they lose
protection on their goods but continue to be confronted with input prices that are higher than they
would be if services markets were contestable. From this perspective it is therefore not
surprising that liberalization and deregulation of service markets began to emerge as high profile
policy reform issues--manufacturing industries needed to have access to low cost, high quality
service inputs in order to be competitive on both the domestic and world markets. Standard
mercantilist pressures to increase access to export markets were a factor in bringing services on
the agenda of a GATT trade round (the Uruguay Round, 1986-94), but it must be recognized that
the potential economic gains from unilateral (autonomous) liberalization are also significant.
How important are different services in the economy? What matters in this connection is
not only the share of services in GDP--which is about 70 percent in high-income OECD
countries and as low as 26 percent in some low-income economies--but the service intensity of
production. Measures of the value of the services provided to (bought by) all other sectors of the
economy in principle can be obtained from input-output tables. While this source of information
has a number of inadequacies--e.g. the nontradability of many services ensures that they are often
provided in-house, so that they are not measured correctly--analysis of input-output tables
provides some insights regarding the inter-sectoral relationships that exist in different economies.
17
An analysis of input-output tables for 26 countries at varying levels of economic development by
Park and Chan (1989) reveals that the relative importance of producer (or business) services--as
measured by the dependence of the manufacturing sector on such service inputs--increases with
per capita incomes.7 Indeed, the relative importance of producer services in developed countries
was three times higher on average than for low income countries. Conversely, the relative
importance of distribution -- retail and wholesale trade -- tends to be greater in developing
countries than in developed ones. A more recent analysis of the role of services in the structure
of production and trade of 15 countries by Francois and Reinert (1996) confirms Park and Chan's
results. Any analysis of the relative importance of services for output, employment and trade
creation in an economy must take into account the in-house provision of services by
manufacturing establishments. Francois and Reinert (1996) conclude that as per capita income
increases, the share of services in total trade increases. Indeed, for high income countries,
services (both arms-length and intra-firm/in-house) account for 60 to 80 percent of all exports, as
compared to some 20 percent or so for low income economies."8
A number of attempts have recently been made to undertake computer general
equilibrium (CGE) analyses that incorporate services liberalization. The problem affecting all
See also Uno (1989).
18 Consumption-induced feedback effects may also be important. These consist of indirectand direct demand effects resulting from the expansion of a given sector. The demand forvarious information-intensive services--whether provided in-house or through markets--isincreasingly driven by households as well as businesses. Examples include financial services,insurance, telecommunications, legal services, real estate, travel services, education, and so forth.If an attempt is made to take into account not only in-house provision of services bymanufacturing establishments but also consumption-induced feedback effects, the relativeimportance of service sectors increases further. See Englebrecht (1990) for an analysis ofJapanese input-output tables that incorporates both in-house provision of information servicesand consumption effects. He concludes that the dependence of services on manufacturing (andvice versa) is approximately equal, and that the indirect employment effects of expansion of themanufacturing sector are to a large extent realized in service sectors.
18
such attempts is that there are no reliable data on the impact of the policies that restrict trade and
investment. They are therefore useful primarily as devices to illustrate the possible economy-
wide impact of services barriers, and the inter-sectoral re-allocation of factors of production that
might follow opening up the service sectors to greater foreign competition. For example, Brown
et al. (1996) conclude that welfare gains associated with the Uruguay Round cuts in industrial
tariffs might have been three times higher if services barriers had been cut by 25 percent as well.
In the absence of CGE studies of services liberalization (or protection), a second-best approach to
exploring the impact of an inefficient service sector is to calculate how protection in services
affects effective rates of protection (ERPs). These are a measure of the extent to which trade
barriers protect domestic value added in production."9 It is important to recognize that the ERP is
not a measure of the cost of protection, since all it does is to provide information on differences
in the level of protection across industries without taking into account the quantity of output that
is protected (industry size) or divergence between private and social costs for each marginal unit
of output. Still some interesting insights can be derived from such analyses.
For concreteness, the example of Egypt is used in what follows. The import-weighted
average tariff in Egypt is currently 30 percent (Table 1). At 70 percent (Table 1, last column),
the average ERP is significantly higher than the average nominal rate. Effective rates are higher
than nominal ones for 17 industries, all of which are final goods sectors. The structure of
protection in Egypt is therefore skewed towards final goods. The service intensity of Egyptian
industries varies substantially, ranging from a high of almost 90 percent for crude petroleum/gas
19 What follows draws on Hoekman and Djankov (1997). The basic formula forcalculating the ERP is (V-V*)/V*, where V is the domestic value added per unit of the a goodat domestic (tariff inclusive) prices, and V* is valued added at world prices (zero tariffs).Value added per unit is defined as the gross value of output minus the cost of inputs used inproduction, i.e., V=tfPf- tiPiX, where tf and ti are the tariffs on a good and its inputs, Pf andPi are the prices, and X is the amount of inputs used to produce a unit of the good. Valueadded at world prices is V*=Pf- PiX, as tariffs do not apply.
19
extraction to a low of 12 percent for cotton ginning and pressing (Table 1, column 3). Industries
that are particularly dependent on services include "other" manufacturing, extractive activities,
paper and printing, clothing, transport equipment, wood products, and rubber/plastics. If account
is taken of the fact that service inputs used by Egyptian industry are less efficient and more
costly than they might be (because of lack of competition), the magnitude of the ERP for most
manufacturing industries falls significantly -- from an average of 70 to 51 percent (Table 1,
colunm 4).20 Analogous to tariffs on traded inputs, the higher the tariff-equivalent of regulatory
policies for services, the lower the effective protection for industries that use the service inputs
involved. Indeed, for some industries it becomes negative, implying that the tariffs on
intermediates combined with the implicit tariffs on service inputs outweigh the tariff protection
applying to the goods produced. That is, the regulatory regime results in the effective taxation of
Egyptian industry. The costs associated with service protection are not limited to direct price-
increasing effects. Insofar as their effect is to reduce quality of services, users are also
confronted with an implicit tax.
Egypt is in the process of negotiating a free trade agreement with the European Union
(EU). Table 2 reports calculations of the ERP that will apply in Egypt once free trade in
merchandise with the EU has been achieved. It is assumed that the cost inefficiency of the
services industry is addressed to varying degrees (ranging from a 25 to 100 percent reduction in
the assumed tariff equivalents). It can be seen that the manufacturing average ERP becomes
positive only if these price wedges are reduced by at least 40 percent. In short, in the absence of
a significant program of services liberalization, free-trade in goods with the EU will translate into
a much greater shift in the terms of protection under which the Egyptian manufacturing industry
20 The tariff equivalent for services is assumed to be 15 percent. This is a quite conservativeestimate given studies that have been undertaken of the Egyptian service industries. SeeHoekman and Djankov (1996) for details.
20
is operating than what is suggested by its current structure of nominal protection.
V. Unilateral, Regional, and Multilateral Liberalization
Many countries have been pursuing unilateral liberalization and competition-increasing policies
in services. Examples abound involving both industrialized high-income countries and
developing economies.21 The political economy of liberalization of trade in services is analogous
to merchandise trade liberalization in that export-oriented industries and consumers will tend to
support it, while import-competing firms can be expected to oppose it.22 Notwithstanding this
basic similarity, there are some important differences.
First, as many services are not tradable in the standard sense of the term, foreign service
providers that desire to contest a market must be able to establish a physical presence in that
market - be it temporarily or on a longer-term basis. Liberalization then requires the
reduction/elimination of both barriers to cross-border trade flows and to the movement of foreign
service providers or consumers. Thus, establishment/commercial presence (e.g., via FDI)
appears on the negotiating agenda. This has potential consequences for the political economy of
liberalization. In the short run, it is generally assumed that sector-specific factors of production
employed in inefficient protected industries will oppose liberalization of market access. In the
services-context this may not be the case. To the extent that establishment is the most efficient
mode of contesting a service market, sector-specific labor may be less opposed to liberalization,
insofar as it is expected that net employment in the sector concerned will not change much upon
liberalization due to the establishment of foreign-owned firms. This is likely to be the case in
For a detailed analysis of unilateral liberalization efforts see UNCTAD and World Bank(1994).
22 What follows draws on Hoekman (1994; 1995).
21
particular when natural barriers to trade are prohibitive, as establishment is then the only feasible
mode.
Second, as barriers to trade in services often take the form of regulations, regulatory
agencies enter into the picture as players more prominently than in the case of trade in goods.
Regulators may have objections to liberalization of cross-border trade, as it is generally more
difficult to control industries that are located in foreign jurisdictions. Indeed, regulators may
prefer that establishment by foreign firns is required, as this ensures that they will maintain their
control of the activity involved (insurance is an example).
Regionalism, discrimination and services liberalization
Regional or preferential agreements to liberalize both trade in goods and international
transactions in services have been prominent in the late 1 980s and early 1 990s. Exarnples
include the United States-Israel Free Trade Area, the Canada-United States Free Trade
Agreement (CUSFTA), the Australia-New Zealand Closer Economic Relations trade agreement
(CER), the EC-1992 program, numerous agreements between the EU and neighboring countries,
the North American Free Trade Agreement (NAFTA) and Mercosur (the Southern Cone
Common Market). All of these agreements are recent, the oldest having been negotiated in the
mid 1 980s. In 1994, regional agreements to liberalize trade in services were complemented by a
new multilateral agreement to liberalize trade in services, the General Agreement on Trade in
Services (GATS).
What might explain the prevalence of preferential agreements? In regional talks,
governments may be more like-minded with respect to the general objectives underlying at least
a subset of the regulatory regimes applying to service industries, especially if - as is often the
case - the countries involved have similar cultures and per capita incomes and are in geographic
proximity. Negotiation of mutual recognition agreements for standards and qualifications, for
22
example, may be easier, facilitating liberalization of access to service markets in a regional
context. Tradeoffs across issues may be more feasible as well, as the countries involved may
have concerns in areas such as foreign or environmental policy that may be linked to market
access (Hughes Hallet and Primo Braga 1994). Issue linkage or "sidepayments" also may be
more feasible, facilitating agreement. In a regional setting there may also be less uncertainty
confronting interest groups regarding the valuation of the set of policy packages. The closer are
the regulatory objectives and specific regimes of countries for individual sectors, the smaller may
be concerns regarding free riding of competitors in potential partner countries. The smaller the
required changes in regulatory regimes and the greater the confidence that regulations will be
enforced in all jurisdictions, the more certain are the conditions of competition ex post.
Geographic proximity may also imply that firms have more information on existing and potential
competitors located in neighboring countries, making monitoring of regional integration
agreements less costly than multilateral efforts.
An implication of the foregoing is that the benefits of regional services integration may
be more easily internalized. More interestingly, a number of service activities may generate
network externalities, or be associated with agglomeration and other scale effects. If these
effects are regional in scope this may strengthen preferences for regional liberalization efforts.
There is some reason to think this may be the case in practice. For example, various distribution-
related activities are subject to scale economies (e.g., multi-modal transport, warehousing,
marketing), and, for small countries in particular, these may be regional. Agglomeration
externalities may be important for tradable services that are not highly tied to specific
manufacturing activities (e.g., financial intermediation or consulting). Network externalities are
particularly important for telecommunications and information services.
These are just some of the possible arguments that might make preferential agreements to
liberalize services more attractive than multilateral efforts. It is not clear at all, however, how
23
significant these conceptual considerations are in practice. What matters from an economic
perspective is to what extent preferential arrangements actually result in significant liberalization.
Here the evidence to date is mixed. In the case of the EEC, where liberalization of services was
to be achieved under the provisions of the 1957 Treaty of Rome, little progress was made for
decades. Indeed, the Single Market or "1992" initiative was to a large extent about achieving
liberalization of services. Many of the recent regional agreements that include services do very
little, if anything, to liberalize trade and investment. An example are the Euro-Mediterranean
Partnership agreements that have been concluded between the EU and a number of
Mediterranean countries. These simply make reference to the multilateral obligations embodied
in the WTO's General Agreement on Trade in Services (GATS).
Multilateral liberalization efforts
As mentioned, at the same time that many nations began to pursue services liberalization in a
plurilateral context, efforts were also initiated to agree to multilateral rules of the game. After
almost 8 years of intensive discussions, the Uruguay Round of multilateral trade negotiations
were concluded in April 1994. Participating countries agreed to establish a new World Trade
Organization (WTO), which, among other things, is to administer three multilateral trade
agreements: the already existing General Agreement on Tariffs and Trade (GATT), as amended
during the negotiations (the so-called GATT 1994), as well as the new General Agreement on
Trade in Services (GATS) and the Agreement on Trade-Related Intellectual Property Rights
(TRIPs). Under the GATT, recurring rounds of negotiations during the last five decades have
helped to gradually bring down average tariffs to very low levels and discipline the use of
nontariff measures. With the creation of the GATS, nations are starting down a similar path.
The GATS contains two sets of obligations: (1) a set of general concepts, principles and
rules that apply to all measures affecting trade in services; and (2) specific negotiated obligations
24
that constitute commitments that apply to those service sectors and subsectors that are listed in a
member country's schedule. The Agreement applies to four "modes of supply:" (1) cross-border
supply of a service (that is, not requiring the physical movement of supplier or consumer); (2)
provision implying movement of the consumer to the location of the supplier; (3) services sold in
the territory of a Member by (legal) entities that have established a presence there but originate in
the territory of another Member; and (4) provision of services requiring the temporary movement
of natural persons (service suppliers or persons employed by a service supplier who is a national
of a country that is a party to the agreement).
Unconditional MFN is a core general obligation of the Agreement: each service or service
supplier from a Member must be treated no less favorably than any other foreign service or
service supplier. MFN applies to all trade in services, except if a member has invoked an
exemption for a specific measure. Such exemptions are in principle time-bound (lasting no
longer than ten years) and are subject to periodic review and negotiation in subsequent trade
liberalizing rounds. MFN exemptions may be invoked only once, upon joining the agreement.
The general obligations of the GATS, of which MFN is the most important, are complemented
by specific commitments on market access and national treatment. Market access is not defined
in the GATS. Instead, agreement was reached on a list of six measures that in principle are
prohibited. These consist of limitations on: (i) the number of service suppliers allowed, (ii) the
value of transactions or assets, (iii) the total quantity of service output, (iv) the number of natural
persons that may be employed, (v) the type of legal entity through which a service supplier is
permnitted to supply a service (e.g., branches vs. subsidiaries for banking), and (vi) participation
of foreign capital in terms of a maximum percentage limit of foreign share holding or the
absolute value of foreign investment. National treatment for foreign services and service
suppliers is defined conventionally as treatment no less favorable than that accorded to like
domestic services and service suppliers. Specific commitments apply only to listed service
25
sectors and subsectors, and then only to the extent that sector-specific qualifications, conditions
and limitations are not maintained. Any or all of the six types of measures that are prohibited in
the market access article may continue to be applied to a sector that is listed by a country as long
as these measures are also listed. Moreover, these measures can pertain to any or all of the four
modes of supply.
The impact of the GATS very much depends on the content of the specific commitments
made by countries. Analyses of these commitments conclude that most countries scheduled only
a part of their service sector--often a small part--and continue to maintain numerous measures
that violate national treatment or market access (as defined in the GATS). High-income
countries (HICs) made commitments of some kind for 47.3 percent of the total possible, as
compared to 16.2 percent for developing countries (Hoekman, 1996). This largely reflects the
fact that many developing countries made very limited commitments. Indeed, over one-quarter
of developing countries scheduled less than 3 percent of all services (i.e., 22 out of 78 countries).
Commitments made by large developing countries, arbitrarily defined as those with GDP of US
$40 billion or more, were substantially higher than the developing country average, accounting
for 38.6 percent of the maximum possible. If commitments are weighted so as to discount the
"value" of sector-specific commitments where restrictions on national treatment or market access
continue to apply, the average weighted coverage of commitments for the HIC group is 35.9
percent; that for developing countries 10.3 percent; and that for large developing countries 22.9
percent. Perhaps the best measure of the state of liberalization that is embodied in the specific
commitments is the share of commitments where no restrictions are maintained on either market
access or national treatment. The figure for HICs is 24.8 percent of all services, and that for the
other countries, 6.9 percent. These numbers vividly illustrate how far away GATS members are
from attaining "free trade" in services, and the magnitude of the task that remains. Market access
commitments by OECD countries tend be restrictive with respect to activities where developing
26
countries have a comparative advantage -- i.e., both low- and high-skill labor-intensive activities
that require either temporary entry or establishment/work permits.2 3
Comparing the GATS to Preferential Arrangements
The GATS extends multilateral disciplines to the area of trade in services. The immediate
implications in terms of services liberalization are limited as much remains to be done to expand
its coverage. The main impact of the agreement is that it involves a standstill promise with
respect to protectionist policies toward services (i.e., a commitment not to introduce new
distortions). In evaluating the GATS, it is helpful to compare it to regional liberalization efforts
such as the NAFTA.2 4 There are fairly significant differences between the GATS and NAFTA.
In the GATS national treatment, market access or the right of non-establishment (i.e. the right to
provide cross-border services without an established presence) are not general obligations,
whereas they are under the NAFTA. Moreover, no distinction is made regarding modes of
supply as far as rights and obligations are concerned in the NAFTA. The NAFTA employs a
negative list approach to coverage (i.e. all services are covered unless they are explicitly
excluded in an annex); the GATS employs positive lists (i.e., obligations apply only to listed
services). A negative list is significantly more transparent because it forces governments to
reveal all non-conforming measures and excluded sectors.
NAFTA also goes beyond the GATS as far as government procurement is concerned.
GATS does not cover government procurement of services, simply calling for negotiations on
23 See Hoekman (1996) for a detailed discussion of the methodology used to derive thenumbers reported above. Hoekman and Primo Braga (1996) discuss the explanatory role oflevels of development, size of the domestic market and FDI stock with respect to market accesscommitments under the GATS.
24 See Hoekman and Sauve (1994) for an in-depth comparison.
27
this issue to be initiated within three years of the entry into force of the agreement.25 NAFTA
requires covered entities to open public contracts to North America-wide tendering. Disciplines
of openness, transparency and competitive bidding are to apply to the purchases by public
entities of goods and services, including construction services. This is significant in that
procurement typically represents the most direct and immediate means of liberalizing the
provision of many services -- such as computer services, consulting engineering, or construction
-- that are otherwise subject to few or no cross-border impediments.
The NAFTA illustrates that regional arrangements to liberalize trade and investment in
services have the potential to go significantly beyond the GATS. In addition to NAFTA, the EU
is of course the foremost example. At the same time, there is quite a lot of overlap between the
GATS and "deeper integration" regional schemes. With the exception of the EU, regional
arrangements invariably embody many exceptions and loopholes. Indeed, in terms of sectoral
coverage the "sensitive" sectors (such as transport) tend to be the same. It can also be recalled
that the GATS is just the first step taken on services in the multilateral context. Over time, the
coverage of the agreement can be expected to expand, and greater liberalization will hopefully be
pursued.
VI. Concluding Remarks
Liberalization of trade in services has become an important policy issue over the last ten years.
Pressure from export-oriented service industries, regional experiments with deep integration and
the inclusion of services in the Uruguay Round of multilateral trade negotiations contributed to
increasing the profile of services trade as a policy issue. This trend is likely to be maintained as
It should be noted that the GATT Government Procurement Agreement (GPA) wasexpanded to include services as of 1997. However, the GPA is a plurilateral agreement thatbinds only signatories (mostly OECD countries).
28
technological progress firther promotes the tradability of services.
Research with respect to the welfare implications of services liberalization is still in its
infancy. In the same vein, the routes (unilateral, regional and multilateral) toward liberalization
have only recently began to be trailed. As suggested by this review, however, the benefits of
such a journey can be substantial and the challenges ahead are to further document the costs of
protectionism in the services sector and to improve the available estimates of the welfare effects
of services liberalization.
29
References
Audet, Denis. 1996. "Market Access in Automobile Distribution," The OECD Observer,Special Edition: 1 1-12.
Apte, Uday. 1994. "Global Disaggregation of Services: Growth Engine for DevelopingCountries?," Southern Methodist University Business School, mimeo.
Bennethan, Esra, Luis Escobar and George Panagakos. 1989. "Deregulation of Shipping: What Isto Be Learned from Chile?," World Bank Discussion Paper 67, Washington.
Bhagwati, Jagdish N. 1984. "Splintering and Disembodiment of Services and DevelopingNations, The World Economy 7, 133-144.
Binswanger, Hans, S. Khandker and Mark Rosenzweig. 1993. "Infrastructure and FinancialInstitutions Affect Agricultural Output and Investment in India," Journal of DevelopmentEconomics, 41:337-66.
Blomstrom, Magnus, and Robert Lipsey. 1989. "US Multinationals in Latin American ServiceIndustries," World Development, 17, 1769-76.
B6hme, Hans. 1989. "The Economic Consequences of Restraints on Transportation in theInternational Market for Shipping Services," in George Yannopoulos (ed.), Shipping Policies foran Open World Economy. London: Routledge.
Branscomb, Anne W. 1995. "Common Law for the Electronic Frontier," Scientific American,Special Issue, 160-63.
Brown, Druscilla, Alan Deardorff, Alan Fox and Robert Stern. 1996. "Computational Analysisof Goods and Services Liberalization in the Uruguay Round," in Will Martin and Alan Winters(eds.), The Uruguay Round and the Developing Economies. Cambridge: Cambridge UniversityPress.
Edvardsson, B, L. Edvinsson and H. Nystrom. 1993. "Internationalization in ServiceCompanies," The Service Industries Journal, 13, 80-97.
Engelbrecht, J. 1990. "New Perspectives on Intersectoral Relationships Between Manufacturingand Services," (Massey University, New Zealand, mimeo).
Ergas, Henry. 1996. "International Trade in Telecommunications Services: An EconomicPerspective," mimeo.
Ford, Robert and Wim Suyker. 1990. "Industrial Subsidies in the OECD Economies," Working
30
Paper No. 74, Paris: OECD.
Forge, Simon. 1995. "The Consequences of Current Telecommunications Trends for theCompetitiveness of Developing Countries," paper prepared for the Information for DevelopmentProgram, The World Bank.
Francois, Joe and Kenneth Reinert. 1996. "The role of Services in the Structure of Productionand Trade: Stylized facts from a Cross-Country Analysis," Asia-Pacific Economic Review, 2:35-43.
Francois, Joseph, Hugh Arce, Kenneth Reinert and Joseph Flynn. 1996. "Commercial Policyand the Domestic Carrying Trade; A General Equilibrium Assessment of the Jones Act,"Canadian Journal of Economics.
Francois, Joe, Douglas Nelson and N. David Palmeter. 1997. "Public Procurement in the UnitedStates: A Post-Uruguay Round Perspective," in B. Hoekman and P. Mavroidis (eds.), Law andPolicy in Public Purchasing. Ann Arbor: University of Michigan Press.
Galal, Ahmed. 1993. "Regulation and Commitment in the Development of Telecommunicationsin Chile," Policy Research paper 1278, World Bank.
Griffin, Joseph and Michael Calabrese. 1988. "Coping with Extraterritoriality Disputes,"Journal of World Trade, 22, 5-26.
Hanna, Nagy. 1994. Exploiting Information Technology for Development. A Case Study ofIndia. World Bank.
Hill, Alice and Manuel Abdala. 1993. "Regulation, Institutions and Commitment: Privatizationand Regulation in the Argentine Telecommunications Sector," Policy Research Working Paper1216, The World Bank.
Hindley, Brian. 1988. "Service Sector Protection: Considerations for Developing Countries,"World Bank Economic Review, 2, 205-24.
Hoekman, Bernard. 1994. "Conceptual and Political Economy Issues in LiberalizingInternational Transactions in Services," in Alan Deardorff and Robert Stem (eds.), Analyticaland Negotiating Issues in the Global Trading System. Ann Arbor: University of Michigan Press.
Hoekman, Bernard. 1995. "Trading Blocs and the Trading System: The Services Dimension,"Journal of Economic Integration, 10:1-31.
Hoekman, Bernard. 1996. "An Assessment of the General Agreement on Trade in Services," inWill Martin and L. Alan Winters (eds.), The Uruguay Round and the Developing Economies.
31
Cambridge: Cambridge University Press.
Hoekman, Bernard and Simeon Djankov. 1997. "Towards a Free Trade Agreement with theEuropean Union: Issues and Policy Options for Egypt," in Ahmed Galal and Bernard Hoekman(eds.), Regional Partners in Global Markets: Limits and Possibilities of the Euro-MedAgreements. London: CEPR.
Hoekman, Bernard and Carlos A. Primo Braga. 1996. "Trade in Services, the GATS and Asia,"Asia-Pacific Economic Review, 2:5-20.
Hoekman, Bernard and Pierre Sauve. 1994. Liberalizing Trade in Services. Discussion PaperNo. 243. Washington D.C.: The World Bank.
Hughes Hallett, Andrew and Carlos A. Primo Braga. 1994. "The New Regionalism and theThreat of Protectionism," Journal of the Japanese and International Economies 8: 388-421.
ITU. 1997. World Telecommunication Development Report. Geneva: InternationalTelecommunication Union, forthcoming.
Jones, Ronald W. and Henryk Kierzkowski. 1990. "The role of services in production andinternational trade: a theoretical framework,"in R.W. Jones and A.D. Krueger, eds., The PoliticalEconomy of International Trade: Essays in Honor of Robert E. Baldwin. Cambridge: BasilBlackwell, pp. 31-48.
Kaspar, Daniel. 1988. Deregulation and Globalization: Liberalizing International Trade in AirServices. Cambridge, MA: Ballinger.
Kessides, Christine. 1993. "Institutional Options for the Provision of Infrastructure," WorldBank Discussion Paper 212.
Li, Jiato and Stephen Guisinger. 1992. "Globalization of Service Multinationals in the "triad"regions," Journal of International Business Studies, 23(4), 675-96.
MacKie-Mason, Jeffrey K. and Hal R. Varian. 1993. "Pricing the Internet," paper presented atthe conference "Public Access to the Internet," JFK School of Government, mimeo.
Noyelle, Thierry and Anna Dutka. 1988. International Trade in Business Services. CambridgeMA: Ballinger.
Park, Se-Hark, and Kenneth Chan. 1989. "A Cross-country Input-Output Analysis ofIntersectoral Relationships between Manufacturing and Services," World Development, 17, 199-212.
32
Pipe, Russell. 1994. "Services Trade Growth in Asia and the Pacific ThroughTelecommunications," UNCTAD, mimeo.
Primo Braga, Carlos A. 1996. "The Impact of the Internationalization of Services onDeveloping Countries," Finance & Development (March), 34-37.
Quartel, R. 1991. "America's Welfare Fleet: The Need for Maritime Policy Reform,"Regulation, 14, 58-67.
Sampson, Gary and Richard Snape. 1985. "Identifying the Issues in Trade in Services," WorldEconomy, 8:171-81.
Sapir, Andre and Chantal Winter. 1992. "Services Trade," in David Greenaway and L. AlanWinters (eds.), Surveys in International Trade. Oxford: Basil Blackwell.
Sauvant, Karl and Zbigniew Zimny. 1987. "Foreign Direct Investment in Services: TheNeglected Dimension in International Service Negotiations, World Competition, 31, (October),27-55.
Sauvant, Karl. 1 986a. Trade and Foreign Direct Investment in Data Services. Boulder:Westview Press.
Sauvant, Karl. 1 986b. International Transactions in Services: The Politics of Transborder DataFlows. Boulder: Westview Press.
Sauvant, Karl. 1990. "The Tradability of Services," in P.A. Messerlin and K. Sauvant, eds., TheUruguay Round: Services in the World Economy. Washington, D.C.: The World Bank and NewYork: United Nations Centre on Transnational Corporations.
Schware, Robert and Susan Hume. 1994. "The Global Information Industry and the EasternCaribbean," Viewpoint No. 17, The World Bank (July).
Senti, Richard. 1986. "Protectionism in International Insurance Transactions," Intereconomics,September/October, 246-50.
Smith, Peter and Gregory Staple. 1994. Telecommunications Sector Reform in Asia. WorldBank.
Stibora, Joachim and Albert de Vaal. 1995. Services and Services Trade: A Theoretical Inquiry.Rotterdam: Netherlands Economic Institute.
UNCTAD and World Bank. 1994. Liberalizing International Transactions in Services: AHandbook. Geneva: United Nations.
33
United States International Trade Commission. 1991. The Economic Effects of Significant US.Import Restraints, Phase III: Services. USITC Publication 2442, Washington.
Uno, K. 1989. Measurement of Services in an Input-Output Framework. Amsterdam: NorthHolland.
Wellenius, Bjorn et al. (ed.). 1989. Restructuring and Managing the TelecommunicationsSector. Washington D.C.: The World Bank.
White, 1988. International Trade in Ocean Shipping Services. Cambridge, MA: Ballinger.
World Bank. 1993. Latin America and the Caribbean: A Decade after the Debt Crisis.Washington D.C.: The World Bank, 1993.
World Bank. 1995. Global Economic Prospects and the Developing Countries. WashingtonD.C.: The World Bank.
WTO. 1996. Annual Report. Geneva: World Trade Organization.
34
Table 1: Protection in Egypt, 1994
Nominal Share of Current ERP, Current ERP,tariff services in total with tariff without tariff
inputs equivalents for equivalents forservices services
Chemicals and products, excl. petroleum 15 32 -12 21Clothing 68 44 147 162
Cotton ginning and pressing 7 12 9 14Cotton spinning and weaving 29 22 38 51Crude petroleum and natural gas 9 89 -21 7Food processing 36 23 59 72Fumrliture 56 26 107 118
Glass and products 34 26 91 109ron, steel, other base metals 28 25 9 14Leather products excl. shoes 35 28 13 28Machinery and appliances 27 27 20 38
ineral products, n.i.e. 19 19 21 33Other extractive industries 13 54 -25 -3Other manufacturing 30 62 23 34aper and printing 31 52 52 90
Petroleum refining 13 32 45 83orcelain, china, pottery 37 34 98 115
Rubber, plastic and products 24 37 16 33Footwear 56 24 267 301Transportation equipment 40 43 65 90Wood, wood products, excl. furniture 33 37 54 66AVERAGE 31 36 51 70
Source: Hoekman and Djankov (1997).
35
Table 2: Impact on ERPs in Egypt of Reducing Tariff Equivalents for Services(Assuming Full Elimination of Tariffs on Imports From EU)
SECTOR Service 0% Cut 25% Cut 50% Cut 75% Cut 100% CutShare
Chemicals and products excl. petroleum 32 -64 -56 -48 -40 -32Clothing: assembled and pieces 44 77 81 84 88 92Cotton ginning and pressing 12 -23 -22 -20 -19 -18Cotton spinning and weaving 22 -24 -20 -17 -14 -11Crude petroleum and natural gas 89 -29 -22 -15 -8 -1Food processing 23 -11 -8 -4 -1 2Furniture 26 -10 -7 -4 -1 2Glass and products 26 4 9 13 18 22Iron steel other base metals 25 2 3 4 5 7Leather products excl. footwear 28 -22 -18 -14 -10 -6Machinery and appliances 27 -28 -24 -19 -15 -10Mineral products n.i.e. 19 -10 -7 -4 -2 1Other extractive industries 54 -25 -19 -14 -8 -2Other manufacturing 62 -8 -5 -2 0 3Paper and printing 52 -29 -20 -10 -1 9Petroleum refining 32 -25 -15 -6 4 13Porcelain china pottery 34 36 40 44 48 52Rubber plastic and products 37 -10 -6 -2 2 6Footwear 24 33 42 50 59 67Transportation equipment 43 -10 -4 2 8 15Wood, wood products excl. furniture 37 -10 -7 -4 -1 2
Mean 33 -9 -4 1 5 10Standard Deviation 17 29 28 28 28 28
Source: Hoekman and Djankov (1997).
36
Policy Research Work`ng Paper Series
ContactTitle Author Date for paper
WPS1732 Agricultural Trade and Rural Dean A. DeRosa February 1997 J. NgaineDevelopment in the Middle East 37959and North Africa: Recent Developmentsand Prospects
WPS1733 The Usefulness of Private and Public Yuko Konoshita February 1997 R. ReffInformation for Foreign Investment Ashoka Mody 34815Decisions
WPS1734 Are Markets Learning? Behavior in Luca Barbone rebruary 1997 L. Barbonethe Secondary Market for Brady Lorenzo Forni 32556Bonds
WPS1735 Competition Policy and the Global Bernard Hoekman March 1997 J. NgaineTrading System: A Developing-Country 37949Perspective
WPS1736 Creating Incentives for Private Ian Aiexander March 1997 R. SchneidermanInfrastructure Cornpanies to Become Colin Mayer 30191More Efficient
WPS1737 Ownership and Corporate Stijn Claessens March 1997 F. HatabGovernance: Evidence from the Simeon Djankov 35835Czech Republic Gernard Pohl
WPS1738 Some Aspects of Poverty in Sri Gaurav Datt March 1997 A. RamirezLanka: 1985-90 Dileni Gunewardena 85734
WPS1739 Safe and Sound Banking in Gerard Caprio, Jr. March 1997 B. MooreDeveloping Countries: We're Not 38526in Kansas Anymore
WPS1740 When is Foreign Aid Policy Credible? jakob Svensson March 1997 R. MartinAid Dependence and Conditionaiity 39026
WPS1741 Privatization, Public Investment, and Harry Huizinga March 1997 P. Sintim-AboagyeCapital Income Taxation Soren Bo Nielsen 38526
WPS1742 Transport Costs and 'Natural' Azita Amjadi March 1997 J. NgaineIntegration in Mercosur L. Alan Winters 37947
WPS1743 How China's Government and State Lixin Colin Xu March 1997 P. Sintim-AboagyeEnterprises Partitioned Property 37644and Control Rights
WPS1 744 Moving to Greener Pastures? Gunnar S. Eskeland March 1997 C. BernardoMultinationals and the Pollution- Ann E. Harrison 31148haven Hypothesis
WPS1745 How Foreign Investment Affects Host Magnus Bl6mstrom March 1997 J. NgaineCountries Ari Kokko 37947
Policy Research Working Paper Series
ContactTitle Author Date for paper
WPS1746 The Role of Long-Term Finance: Gerard Caprio, Jr. April 1997 P. Sintim-AboagyeTheory and Evidence Asli DemirguQ-Kunt 38526
WPS1 747 Protection and Trade in Services: Bernard Hoekman April 1997 J. NgaineA Survey Carlos A. Primo Braga 37947
WPS1748 Has Agricultural Trade Liberalization Merlinda D. Ingco April 1997 J. NgaineImproved Welfare in the Least-Developed 37947Countries? Yes